Show Me The Yen

There is a very interesting article in the Cincinnati Enquirer this morning, written by Yuri Kageyama of the AP, titled Japanese Remain Wary of Borrowing and Debt. I believe it gets to the heart of Japan’s extraordinary manufacturing success, and the struggle with same in the U.S.

According to the article, 55% of Japanese savings are in cash, compared to 13% in the U.S. Similarly, 9% of Japanese of Japanese savings are in stocks and bonds, compared to 34% in the U.S.

It seems to have nothing to do with whether interest rates represent a better deal than the stock market. The government has kept Japanese interest rates near zero in order to induce companies to borrow and the populace to invest, but neither business nor citizenry are buying it. They simply seem to think that cold, hard cash is worth more than any piece of paper.

The economic concern in Japan is that the growth rate of the Japanese economy over the last decade is pretty small, and the economic ‘experts’ think that borrowing will give it a boost. At the same time, however, the article points out that Japan has the second largest economy in the world. Not bad for a country that was one vast, smoking crater sixty years ago.

Henry Ford was cash driven when the basic principles of lean manufacturing arose from Highland Park. Toyota was also cash driven when they took his concepts to an art form. Sooner or later, the economic experts in the U.S. will catch on.

A cash driven company sees inventory as a waste. A company that believes accounting’s Matching Principle and its evil twin – Full Overhead Absorption – are based on some unquestionable, mystic truth, think inventory is an asset. Those companies have bought into the notion that cash is simply another type of paper. I don’t think a company that cannot see the difference between cash and its other types of working capital can ever really become lean.

Taichi Ohno said that all Toyota was doing was looking at the time line from when a customer order was received until the cash was collected. In the U.S., we settle for looking at the time line from when we pull inventory out of one stack of Work In Process inventory until we put it into another stack. The difference between the two is whether the company thinks cash has any particular value or not.

Only 8% of the retail transactions in Japan involve a credit card and 46% of the Japanese folks with credit cards are seriously considering getting rid of them. That’s too bad. If the brilliant marketing people at VISA, MasterCard and American Express could only persuade the Japanese to not leave home without one of their cards, the manufacturing gap between us could be closed by dragging them down to our level of economic thinking.

Comments

Apparently there is some borrowing going on in Japan as the national debt is 163% of GDP and this is higher than any major industrialized nation. Compare this with 66% of GDP for the United States according to the OECD. A combination of declining and aging population, an increasingly urbanized population, and low economic growth make this spending unsustainable.

My understanding is that the 163% debt figure is government borrowing. The Japanese government has failed to put the brakes on spending after the “bubble broke”, and they still fund massive infrastructure projects they probably cannot afford. The primary reason they are pushing individuals and businesses to break their ages old tradistions and borrow is to try to heat the economy back up and generate some tax revenues.